Does having multiple credit cards hurt your credit score? If you are like most people, your answer to that question is probably, “Of course it’s bad for your credit!” You imagine that, with every new card, your credit score will drop lower and lower until no lender would dare give you credit. Here’s a shocker: it often has the opposite effect.
Understanding how credit scores work can take some effort, but it’s worth it. Basically, having multiple credit cards can boost your score by increasing the amount of credit available to you and showing lenders that you are continuing to manage that credit responsibly.
Case in point: a consumer with a credit score of 797 opened a new card and was shocked to see that her score jumped to 819. Her spending habits did not change dramatically, so she now had more credit available to her while her “credit utilization ratio” (how much she owed compared to her total limit) decreased. Her score may have decreased a few points when she applied for the card, but it certainly rebounded after she got approved and accessed all that new credit.
Your credit score is also improved by holding credit for long periods of time. So, if you’ve had that trusty AmEx since college but it just doesn’t hold a candle to your shiny new MasterCard®, resist the urge to either cut up the older card or cancel it altogether. Your score looks at the “age” of your credit, so having an “elderly” credit line makes you look that much better. Keep your infrequently-used accounts active by buying something small every so often and paying them off in full at the end of the month. The only reason to cut up an older card is if it has an annual fee too high to justify keeping the credit line open. But if you do cut your card, don’t be surprised if your credit score goes down! Two reasons: the average age of your credit has just decreased, and your credit utilization has increased.
In addition to higher credit scores, strategic use of multiple credit cards can put free money in your pocket. Know what rewards your cards offer (you do have rewards cards, right?) and maximize them!
For example, the Bank of America® Cash Rewards credit card - $200 Cash Rewards Bonus Offer has a flexible rewards program:
- 3% - Earn 3% cash back in the category of your choice (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases)
- 2% - Earn 2% cash back at grocery stores and wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases)
- 1% - Earn unlimited 1% cash back on all other purchases
Our partner Citi® has introduced the Citi® Double Cash Card – 18 month BT offer. Earn cash back TWICE. Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. Smart credit card users will realize that the card lives up to its name by, in effect, giving them twice as much from the rewards program.